Enhancing SME Participation in Global Value Chain

Transcription

1 Enhancing SME Participation in Global Value Chain Prema-chandra Athukorala Arndt-Corden Department of Economics Crawford School of Public Policy College of Asia and the Pacific 1

2 Global Value Chains (GVCs) Rationale for policy emphasis Policy options SME engagement in GVCs: The Case of Penang Export Hub, Malaysia 2

3 Global Value Chains (GVCs) Value chain The full range of activity involved in bring a product from its inception (the design stage) to its final consumer Global value chain (GVC) Value chain that is divided among multiple firms that spread across geographic boundaries 3

4 Understanding of the structures and dynamics of GVCs is vital for crafting policies to promote SME engagement GVCs are not homogenous (contrary to the way the terms is widely used in the policy debate) Useful starting point for understanding the heterogeneity is the two-way classification: Buyer-driven GVCs Producer-drive GVCs 4

5 Buyer-driven GVCs Lead firm in the value chain is the international byer (a large retailer or a brand manufactures). Common in diffused-technology products such as garments, footwear, toys and variety of handicrafts. 5

6 Producer-driven GVCs Lead firm is the multinational manufacturing firm Common in vertically integrated global industries such as electronics, electrical goods, automobiles, scientific and medical devices Driven by global production sharing A more suitable term would be global production networks (GPN) 6

7 Rationale for policy emphasis GVCs have become much more prevalent and elaborate over the past few decades, as an integral facet of economic globalisation. (internationalisation of the value chain) The policy emphasis on joining GVCs is therefore a natural response as part of policy transition from a inward-oriented to an outward-oriented development strategy 7

8 What is the rationale for the emphasis on promoting SMEs engagement in GVCs? - Better employment and equity outcome of SME operations compared to large firms [greater capacity reduce poverty and inequality through labour absorption (mostly unsullied labour)] - Provide a seedbed for future large national companies - Foster industrial linkages - Provide a foundation for the national R&D effort * * This point is based on the experience of mature industrialised countries; whether it is applicable to developing countries is debatable 8

9 Policy options A two-pronged approach: Policies to offset the disadvantages imposed upon SMEs by the prevailing trade and industry policy regime SME-specific policies: policies specifically designed to remove impediments to their operations resulting from natural market imperfections - SME-specific policies are effective only if they are part of an overall GVC-friendly policy package - These policies need to be crafted to suit the structural peculiarities of particular GVC 9

10 SME engagement in producer-driven GVCs: The Case of Penang Export Hub, Malaysia Based on Athukorala, P. (2014), Growing with Global Production Sharing: The Tale of Penang Export Hub, Competition & Change, 18(3), (Longer working paper with case studies wp_econ_2011_13.pdf) and my ongoing research 10

11 Penang A state of Malaysia, located on the northeast coast of Malaysian Peninsula (See Map) Area Penang Island: 293 Sq. KM Seberang Perai: 753 Population 1.52 million. Resource base: The least natural-resourced endowed state among the 13 Malaysia states, 11

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14 Evolution of the export hub The arrival of Eight Samurai (National Semiconductor (NS), Intel, AMD, Osrum, Hewlett Packard, Bosch, Hitachi, Clarion) to set up plants for component assembly From the late 1980s, production base diversified with the entry of MNEs in consumer electronics and consumer peripheral industries 14

15 Emergence of ancillary (supporting) industries - initially foreign vendors - Then, local vendors (some local firms became MNEs) By the mid-1980s an export cluster with a sizeable number of branch plants of electronics and electrical MNEs and a network of local SMEs was well established 15

16 Ownership stature of manufacturing firms in Penang, 2008 Firms (%) Employment (%) Foreign-owned Large SMEs Local Large SMEs (Number) (1193) (299,329) 16

17 Policies A comprehensive policy package for promoting export oriented industrialization, with a specific focus on linking Penang to global electronics value chain Overall policy package to attract MNE: Free Trade Zones Infrastructure development A land bank, which served the dual purposes of gaining budgetary autonomy and facilitating infrastructure development Investment promotion 17

18 Policies to foster GVC-SME links Institutional support for MNE affiliates to forge subcontracting relations with local firms, including launching vendor development programs Industrial estates (side by side with EPZs) Penang Skill Development Centre : Vocational training programs with a focus on vendor development Equal treatment of SMEs and MNE affiliate in providing dutyfree access to imported inputs and other tax concessions Avoiding rescuing failed firms (policy makers beloved in creative destruction ) 18